TMI Blog1970 (12) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or recovering any sales tax in respect of extraction of bamboos and salai wood from the forests of the division. 2.. The broad facts of the case are not in dispute and may be shortly stated. By an instrument of lease dated 4th August, 1956, the President of the Union, acting on behalf of the quondam Part C State of Vindhya Pradesh, authorised the petitioner to extract from certain forests bamboos and salai wood on terms and conditions therein stated, including payment of royalty at certain rates on the bamboos and salai wood so extracted. Consequent upon the formation of the new State of Madhya Pradesh in accordance with the provisions of the States Reorganisation Act, 1956, all rights and liabilities relating to this transaction devolved upon the new State of Madhya Pradesh. When the lease was granted, the C.P. and Berar Sales Tax Act, 1947, was in force in the State of Vindhya Pradesh and the definition of "goods" in section 2(g) of that Act, as modified and in force in that State, excluded from the purview of the Act forest contracts that gave a mere right to collect timber, wood or forest produce. Subsequently, the Madhya Pradesh General Sales Tax Act, 1958, was enacted, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lect and carry away tendu leaves, to cultivate, culture and acquire lac and to cut and carry away teak and timber and other species of trees and bamboos. It was observed that the rights were in respect of growing crops, and were, therefore, excluded from the definition of "immovable property" as defined in the Transfer of Property Act. It was also observed that the rights did not amount to encumbrances within the meaning of the M.P. Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950. It was further held that the contracts were in essence and effect licences granted to cut, gather and carry away forest produce without creating any interest in land. This case was distinguished in Ananda Behera and Another v. State of Orissa and Another [1955] 2 S.C.R. 919; A.I.R. 1956 S.C. 17., where it was held that the grant in respect of fishery rights implied a licence to enter on the land coupled with a grant to catch and carry away the fish and amounted to a profits a prendre, which was immovable property. In Smt. Shantabai v. State of Bombay and others A.I.R. 1958 S.C. 532., the right given related to bamboos, fuel wood and teak. Their Lordships accepted the view take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract and recover damages by way of compensation. The State is not a party to the contract and is not bound by the contract and accordingly acknowledges no liability under the contract which being purely personal does not run with the land. If the petitioner maintains that, by some process not quite apparent, the State is also bound by that contract, even then she, as the owner of that contract, can only seek to enforce the contract in the ordinary way and sue the State if she be so advised, as to which we say nothing, and claim whatever damages or compensation she may be entitled to for the alleged breach of it. This aspect of the matter does not appear to have been brought to the notice of this court when it decided the case of Chhotabhai Jethabhai Patel and Co. v. The State of Madhya Pradesh[1953] S.C.R. 476; A.I.R. 1953 S.C. 108., and had it been so done, we have no doubt that case would not have been decided in the way it was done." This question again came up for consideration in Mahadeo v. State of BombayA.I.R. 1959 S.C. 735., and their Lordships observed: "..... But what was the nature of those rights of the petitioners? It is plain, that if they were merely contractu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mchand v. State of Madhya PradeshA.I.R. 1968 S.C. 1218. and Badri Prasad v. State of Madhya Pradesh and Another A.I.R. 1970 S.C. 706. In the last-mentioned case, their Lordships observed: "There is no force in the contention of the learned counsel that under the contract the plaintiff had become owner of trees as goods. It is true that trees which are agreed to be severed before sale or under the contract of sale are 'goods' for the purposes of the Sale of Goods Act. But before they cease to be 'proprietary' right or interest in proprietary rights within the meaning of sections 3 and 4(a) of the Act they must be felled under the contract. It will be noticed that under clause 1 of the contract the plaintiff was entitled to cut teak trees of more than 12 inches girth. It had to be ascertained which trees fell within that description. Till this was ascertained, they were not 'ascertained goods' within section 19 of the Sale of Goods Act. Clause 5 of the contract contemplated that stumps of trees, after cutting, had to be 3 inches high. In other words, the contract was not to sell the whole of the trees. In these circumstances property in the cut timber would only pass to the plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st department for the purpose. Similarly, each one of the felling series of salai wood forests was to be divided into 20 annual coupes and the petitioner could work, in any given year, only one of these coupes. Thus, every year it could operate only on the exploitable bamboos and salai wood ear-marked and allotted for the purpose by the forest department, for which, as already indicated, it had to make annual payments in four instalments, calculated at an agreed rate per ton of the material extracted. It is, however, argued on the authority of Ramkrishna Deo v. Collector of Sales Tax[1955] 6 S.T.C. 674., that in such a case, the royalty payable is not sale price but rent or compensation which the petitioner, as occupier, pays periodically for the benefits granted to him. That was the opinion of one of the learned Judges constituting the Division Bench with which the other Judge did not agree and the case was not decided on that basis. It is true that the term of lease is a long one spreading over many years but, as shown, in effect it operated every year only on two coupes, one of bamboos and another of salai wood, ear-marked and allotted by the forest department for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 1 S.C.C. 611 at p 613; [1971] 27 S.T.C. 116 at p. 118 (S.C.). , as follows: "Standing timber may ordinarily not be regarded as 'goods' but by the inclusive definition given in section 2(7) of the Sale of Goods Act, things which are attached to the land may be the subject-matter of contract of sale provided that under the terms of the contract they are to be severed before sale or under the contract of sale." However, under section 12 of the Madhya Pradesh General Sales Tax Act, 1958, such sales were exempted from sales tax for the period 1st April, 1959, to 2nd November, 1962. Thereafter, the sales became taxable. Even so, ordinarily, sales tax could not be recovered apart from the sale price but section 64A of the Sale of Goods Act, 1930, introduced by an amendment made in 1963, brought about a change in regard to recovery of such dues. This will be clear from the section itself which is reproduced: "64A. (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can it be said that it is carrying on business within the meaning of the definition? There are several decided cases in support of the view that, in circumstances like those present in this case, the State Government or the forest department cannot, merely by selling the forest produce grown on their land, be regarded as carrying on any business of buying, selling, supplying or distributing goods: Raja Visheshwar v. The Province of Bihar[1951] 2 S.T.C. 129., Ramkrishna Deo v. The Collector of Sales Tax, Orissa [1955] 6 S.T.C. 674., Raja Bhairabendra Narayan Bhup v. Superintendent of Taxes, Dhubri, and Others [1958] 9 S.T.C. 60., Pithapuram Taluk Tobacco, Cigars and Soda Merchants' Union v. The State of A.P.[1958] 9 S.T.C. 723., Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co.[1967] 20 S.T.C. 520 (S.C.)., A.M. Ansari and Others v. The Board of RevenueA.I.R. 1969 A.P. 399.and Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Midland Rubber and Produce Co., Ltd.[1970] 25 S.T.C. 57 (S.C.). In the case of Ramkrishna Deo v. The Collector of Sales Tax, Orissa[1955] 6 S.T.C. 674. , the Maharaja of Jeypore had, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the onus of proving that the assessee was carrying on the business and was therefore a dealer within the meaning of section 2(b) of the Act." In Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co.[1967] 20 S.T.C. 520 (S.C.)., the Supreme Court had noticed their following earlier observations in State of Andhra Pradesh v. H. Abdul Bakshi and Brothers[1964] 15 S.T.C. 644 (S.C.). , in regard to the characteristics of a business for taxing statutes: "The expression 'business' though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered in ..... 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